Beyond Abenomics

At a crucial time for the global economy, with the complicated removal of the United Kingdom from the European Union, an unsettling election in the United States, and economic uncertainty in China, Jesper Koll delivered a presentation about Abenomics on June 24 at Tokyo American Club.

Branding himself as “Japan’s last optimist since 2011,” the WisdomTree Investments CEO focused on misconceptions about Japan’s economy.

Koll began with a surprising revelation: Japan’s GDP is exactly where it was 21 years ago. Although the Bank of Japan (BOJ) balance sheet has been pumped up to 50% of GDP, the amount of money that is being created is not generating economic growth.

“The good news is that, in Japan, we are at the end of this tunnel, where this pushing of the string is actually going to start to create a new credit cycle,” he explained. “The collapse of the price of money is finally beginning to work.”

WHY SHOULD COMPANIES INVEST IN JAPAN?
In Koll’s view, Japan’s greatest asset is intellectual richness. Statistically, only Israel has invested more in research and development decade after decade.

For Japan, this investment has not always delivered a strong return. “There is no question that Japanese companies did not do a good job of commercializing, but that is because—over the last 20 years—there were fires burning at home. This has come to an end,” he declared. “This is a rich country and now this world of intellectual property, this world of creativity, this world of innovation is actually being exploited.”

Koll spoke next about how only 41 percent of profits are generated in Japan. Exports account for 28 percent of profits while 31 percent result from offshore operations. Giving the audience an opportunity to guess which country was top of the list, he revealed “It’s not China, but the US.” The biggest risk for Japan would be for America to have recession. A quarter of Japan’s earnings are directly dependent on the USA, which is also why the exchange rate—dollar to yen—and the Japanese stock market are basically linked at the hip.

Additionally, China has become a competitor. Japan does not want to become a colony of the People’s Republic of China, Koll said, but to be taken seriously by the Chinese, as well as the Americans, Japan needs to perform.

Speaking of this new chapter of Japanese history, Koll said “Japan will be the only advanced industrial economy where we will see the rise of a new middle class.”

He believes this because Japan is in the demographic sweet spot. An overall increase in the quality of jobs and the addition of 280,000 full-time positions in 2014 and 2015—half of which were filled by women in their thirties and forties—is an indicator of the change.

Koll closed his presentation with a prediction: “The second half of 2016, for Japanese, is going to be very good.”